4 Ethical Issues with Enron Essay

Whenever someone hears the word "Enron" today, they usually think of the transgressions committed by the top-level executives who successfully managed to destroy the company's reputation and achievements.

Enron was formed in 1985 following the merger of Houston Natural Gas Co. and InterNorth Co. The Chairman Kenneth Lay, CEO Jeffrey Skilling, and CFO Andrew Fastow were the backbone of Enron during its growth period. These executives exercised their power and expertise to unethically “increase” Enron’s profits by hiding the company’s debt. The ethical dilemma that Kenneth Lay and Jeffrey Skilling faced was whether to let their stakeholders know how poorly the company was doing, or to hide the debt. They chose to cut corners and falsify information that would later come back to get them in trouble.

Enron’s fraudulent financial practices lead to the Sarbanes Oxley Act of 2002. Mistakes made by the company and their leadership shocked the world and cost billions. Enron’s leadership could have taken steps to prevent or mitigate the repercussions of their actions. The act restored ethical and reliable financial practices to the market.The major provisions of the act made corporations responsibility for financial reports, and required internal and external audits. The Act changed the accounting regulatory environment. And although corporations incurred the additional expense of audit and new reporting standards, these changes restored consumer investing confidence, strengthening the corporations and the stock market overall. (Flanigan, 2002.)

The first important factor in the Enron case advanced interests on share price. The second factor how the company was liberalized over the past 20 years along with the reduction of legal responsibility of investment banks and accounting firms. The third factor, which is the most important, was the immediate alteration of pay packages given to investment bankers, executives, and accountants (Barreveld, 2002). In this case, the factors mentioned above was a result of the culture implemented by the executive leaders whom were influenced by unethical behaviors they engaged in. One could agree that Enron was definitely reaping the bad seeds that the

As with much of Enron, their outward appearance did not match what was really going on inside the company. Enron ended up cultivating their own demise for bankruptcy by how they ran their company. This corrupt corporate culture was a place whose employees threw ethical responsibility to the wind if it meant financial gain. At Enron, the employees were motivated by a very “cut-throat” culture. If an employee didn’t perform well enough, they would simply be replaced by someone who could. “The company’s culture had profound effects on the ethics of its employees” (Sims, pg.243). Like a parent to their children, when the executives of a company pursue unethical financial means, it sets a certain tone for their employees and even the market of the company. As mentioned before, Enron had a very “cut-throat” attitude in regards to their employees. This also became one Enron’s main ethical falling points. According to the class text, “employees were rated every six months, with those ranked in the bottom 20 percent forced to leave” (Ferrell, 2017, pg. 287). This system which pits employees against each other rather than having them work together will create a workplace of dishonesty and a recipe of disaster for the company. This coupled with the objective of financial growth, creates a very dim opportunity for any ethical culture. “The entire cultural framework of Enron not only allowed unethical behavior to flourish,

The story of Enron is truly remarkable. As a company it merely controlled the electricity, natural gas and communications sectors of the world. It reported (key word, reported) revenues over one hundred billion US dollars and was presented America’s Most Innovative Company by Fortune magazine for six sequential years. But, with power comes greed and Enron from its inception employed people who set their eyes upon money, prestige, power or a combination of the three. The gluttony took over sectors which the company could not operate proficiently nor successfully.

Enron was facing risks, risks from every angle. You can see from the history to the demise of the company everything was based on risk. Even when it came to the personal lives of those in charge, you can find some type of risk. Being a Houston native, I did not quite understand the reaction to Enron. I did not understand why it went so far as to changing the name of a stadium from Enron to Minute Maid Park. I was only a teen at the time, but now I am not. I now hope to explain my opinion on how the past, the executive’s and outliers were red flags prior to the Enron crisis. My thoughts on how they could have handled the matter. Lastly, express what I would have done if I was an executive or general council to such a company.

Enron Corporation was an American energy trading company who committed the largest audit fraud alongside Arthur Andersen and filed for one of the largest bankruptcies in history in 2001 after producing false numbers and committing fraud for years (“Enron’s Questionable Transactions” page 93). Enron failed to run an ethical business in multiple aspects. The executives of the company abused their powers by having board members not properly oversee its employees. Enron committed accounting malpractice by producing false financial reports to hide the debt from failed projects and deals. Using a mark-to-market accounting method, Enron would create assets and claim the projected profit for the books immediately even if the company had not made any profit yet. In order to hide its failures, rather than reporting their loss, they would transfer the loss to an off-the-books account, ultimately leading the loss to go unreported. Along with Enron hiding losses and creating false profit for the

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

Enron started as a sound company that had a promising future in the oil and energy business. The companies CEO and CFO were charged on 35 different accounts of fraud, conspiracy, and insider trading that cleared most of its employee’s retirement pensions and billions of dollars for others (Unknown, 2016). It is impossible to account for every transaction that a company will produce, but the revamping of government

In October of 2001, Enron announced a third-quarter loss of $618 million. The SEC and the U.S. Department of Justice both launched investigations into the sudden fall of the company and found that Enron had overstated their earnings by an estimated $586 million since 1997. Top executives in the company sold their majority shares days before the company’s collapse leaving lower level employees with worthless stocks in their pensions causing them to lose the majority of their life savings (CNN). As of today, charges have been brought against at least sixteen employees and executives in connection with Enron on counts of wire fraud, securities fraud, insider trading and money laundering among others. Flashback to June 17, 1972, and the

All of the prior represents the business side of the downfall of Enron. That being said, businesses fail all of the time. The reason why Enron Corporation and its executives will always live in infamy is not because the company failed, but how and why the company failed. How, exactly, does a company worth about $70 million collapse in less than a month? It became clear that the company not only had financial problems, but ethical problems that started from the top of the company and trickled down. A key player in these problems was Jeffrey Skilling. He was a man brought to the company by Ken Lay himself. Skilling brought his own accounting concept to the company. It was called mark-to-market accounting. This concept allowed Enron to record potential profits the day a deal was signed. This meant that the company could report whatever they “thought” profits from the deal were going to be and count the number towards actual profits, even if no money actually came in. Mark-to-market accounting granted Enron the power to report major profits to the public, even if they were little or even negative. It became a major way

In my opinion the Enron scandal was one of the worst in American history. While we could argue many facets of the scandal the main talking point in my mind stems from the sheer level of corruption they managed to obtain. Which begs the question how far would the corruption have went had it not been for an insider blowing the whistle? It is estimated that Enron hid approximately 51.2 billion dollars worth of debt. They achieved this by utilizing several ingenious but unethical and illegal methods. However, the key to this scandal was the key involvement by the company which was supposed to be the watchdog. This is one of the major reasons SOX was created by the federal

Unfortunately, scandals like Enron are not isolated incidents and the last decade has offered Americans a disheartening perspective with comparable scandals like that of WorldCom and Tyco, Sunbeam, Global Crossing and many more. Companies have a concrete responsibility not just to their investors but to society as a whole to have practices which deter corporate greed and looting and which actively and effectively work to prevent such things from happening. This

Enron’s code of ethics prided itself on four key values; respect, integrity, communication, and excellence. Codes of ethics should be a reflection of what the owners, investors, and employees work towards as an organization. Executives overlooked those values as they deliberately corrupted Enron by engaging in